JACK HENRY & ASSOCIATES INC (JKHY)

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements included in this Form 10-Q for the fiscal quarter ended March 31, 2026.

OVERVIEW

Jack Henry & Associates, Inc. is a well-rounded financial technology company headquartered in Monett, Missouri, that employs approximately 7,300 full-time and part-time associates nationwide, and is a leading provider of technology solutions and payment processing services primarily to community and regional banks and credit unions. Our solutions serve approximately 7,400 clients and consist of integrated data processing systems solutions to U.S. banks ranging from de novo to multi-billion-dollar institutions with up to $55 billion and above in assets, core data processing solutions for credit unions of all sizes, and non-core highly specialized core-agnostic products and services that enable banks and credit unions of every asset size and charter, and diverse corporate entities outside the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs. Our integrated solutions are available for on-premise installation and delivery in our private and public cloud.

Each of our solutions shares the fundamental commitment to provide high-quality business systems, service levels that consistently exceed client expectations, and integration of solutions and practical new technologies. The quality of our solutions, our high service standards, and the fundamental way we do business typically foster long-term client relationships, attract prospective clients, and have enabled us to capture substantial market share.

Through internal product development, disciplined acquisitions, and alliances with companies offering niche solutions that complement our proprietary solutions, we regularly introduce new products and services and generate new cross-sales opportunities. We provide compatible computer hardware for our on-premise installations and secure processing environments for our outsourced solutions in our private and public cloud. We perform data conversions, software implementations, initial and ongoing client training, and ongoing client support services.

We believe our primary competitive advantage is client service. Our support infrastructure and strict standards provide service levels that generate high levels of client satisfaction and retention. We consistently measure client satisfaction using a variety of surveys, such as an annual survey on the client's anniversary date and randomly-generated surveys initiated each day by routine support requests. Dedicated surveys are also used to grade specific aspects of our client experience, including product implementation, education, and consulting services.

Our two primary revenue streams are “services and support” and “processing.” Services and support includes: “private and public cloud” revenues that predominantly have contract terms of six years at inception; “product delivery and services” revenues, which include revenues from the sales of licenses, implementation services, deconversions, consulting, and hardware; and “on-premise support” revenues, composed of maintenance fees that primarily contain annual contract terms. Processing includes: "remittance” revenues from payment processing, remote capture, and ACH transactions; “card” revenues, including card transaction processing and monthly fees; and “transaction and digital” revenues, which include transaction and mobile processing revenues. We continually seek opportunities to increase revenue while at the same time containing costs to expand margins.

We have four reportable segments: Core, Payments, Complementary, and Corporate Services. The respective segments include all related revenues along with the related cost of revenue.

A detailed discussion of the major components of the results of operations follows. All amounts in the following discussion are in thousands, except per share amounts.

RESULTS OF OPERATIONS

For the third quarter of fiscal 2026, total revenue increased 8.7%, or $51,158, compared to the same quarter in fiscal 2025. Total revenue less deconversion revenue of $18,665 and acquisition revenue of $1,651 for the current fiscal quarter and less deconversion revenue of $9,644 and revenue related to a contractual change of $1,201 for the prior fiscal year third quarter results in an increase of 7.3% quarter over quarter. This increase was primarily driven by organic growth in our revenue lines including data processing and hosting within private and public cloud, Jack Henry digital and transaction, card, and faster payments.

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Operating expenses increased 7.8%, or $34,851, for the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025. Total operating expenses less deconversion operating expenses of $4,030 and operating expenses for the acquired company of $2,484 for the current fiscal quarter and less operating expenses related to deconversion operating expenses of $2,794 and a contractual change of $992 for the prior fiscal year third quarter results in an increase of 7.3% quarter over quarter. This increase was primarily driven by higher personnel costs and increased direct costs, quarter over quarter.

Operating income increased 11.8%, or $16,307, for the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025. Total operating income less the impact of deconversion operating income of $14,635 and an operating loss for the acquired company of $833 for the current fiscal quarter and less deconversion operating income of $6,851 and operating income related to a contractual change of $209 for the prior fiscal year third quarter results in an increase of 7.3%, quarter over quarter. This increase was primarily driven by organic revenue growth, partially offset by increased operating expenses detailed above tempered by our disciplined approach to controlling costs, quarter over quarter.

The provision for income taxes increased 15.7%, or $4,847, for the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025. This increase was primarily driven by the increase in income before income taxes. The effective tax rate for the current fiscal quarter was 22.5% compared to 21.7% for the same quarter a year ago.

Net income increased 10.6%, or $11,786, for the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025. The total net income increase, quarter over quarter, was lower when adjusted for the impact of deconversion net income and a net loss for the acquired company in the current fiscal quarter and the net income related to deconversion net income and a contractual change in the prior fiscal year third quarter. The increase, excluding these one-time items, was primarily driven by net organic growth in our lines of revenue for the third quarter of fiscal 2026 partially offset by commensurate higher operating expenses detailed above that were tempered by our disciplined approach to controlling costs and the increased provision for income taxes.

For the fiscal nine months ended March 31, 2026, total revenue increased 8.0%, or $140,400, compared to the same period in fiscal 2025. Total revenue less deconversion revenue of $33,504 and revenue for the acquired company of $3,595 for the current fiscal year period and revenue from a contractual change of $14,672 and deconversion revenue of $13,410 for the prior fiscal year period results in an increase of 7.6%, period over period. This increase was primarily driven by organic growth in our revenue lines including data processing and hosting within private and public cloud, card, Jack Henry digital and transaction, and faster payments.

Operating expenses increased 4.1%, or $55,157, for the fiscal nine months ended March 31, 2026, compared to the same period in fiscal 2025. Total operating expenses less deconversion operating expenses of $8,167, the impact of the gain on assets, net, of $6,829, and operating expenses for the acquired company of $5,413 for the current fiscal year period and less operating expenses related to a contractual change of $12,494 and deconversion operating expenses of $3,686 for the prior fiscal year period results in an increase of 4.9%, period over period. This increase was primarily driven by higher personnel costs and higher direct costs, period over period.

Operating income increased 20.6%, or $85,243, for the fiscal nine months ended March 31, 2026, compared to the same period in fiscal 2025. Total operating income less deconversion operating income of $25,337, the impact of the gain on assets, net, of $6,829, and an operating loss for the acquired company of $1,817 for the current fiscal year period and deconversion operating income of $9,724 and operating income related to a contractual change of $2,178 for the prior fiscal year period results in an increase of 16.7%, period over period. This increase was primarily driven by organic revenue growth, partially offset by increased operating expenses detailed above tempered by our disciplined approach to controlling costs.

The provision for income taxes increased 24.1%, or $23,560, for the fiscal nine months ended March 31, 2026, compared to the same period in fiscal 2025. This increase was primarily driven by the increase in income before income taxes. The effective tax rate for the current fiscal year period was 23.7% compared to 23.0% for the same period a year ago.

Net income increased 19.3%, or $63,405, for the fiscal nine months ended March 31, 2026, compared to the same period in fiscal 2025. The total net income increase, period over period, was lower when adjusted for the impact of the deconversion net income, a gain on assets, net, and a net loss for the acquired company in the current fiscal year period and deconversion net income and the net income related to a contractual change in the prior fiscal year period. The increase excluding these one-time items was primarily driven by net organic growth in our lines of revenue for the nine months ended March 31, 2026, partially offset by commensurate higher operating expenses detailed above tempered by our disciplined approach to controlling costs and the increased provision for income taxes.

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As we move into the fourth quarter of fiscal 2026 – our 50th year in business – we are excited and confident about our future, and we remain well-positioned to deliver durable, consistent growth and attractive results for our stockholders. Technology spending by financial institutions remains strong, and there is clear demand for our differentiated and innovative technology solutions. We have a very healthy sales pipeline and a proven ability to attract and win deals, especially with larger financial institutions. Our unwavering focus on culture, service, innovation, strategy, and execution continues to set us apart in the market and will enable us to drive continued industry-leading revenue growth with strong margin expansion, benefiting our associates, clients, and stockholders.

A detailed discussion of the major components of the results of operations for the fiscal three and nine months ended March 31, 2026, follows.

Discussions compare the current fiscal year's three and nine months ended March 31, 2026, to the prior fiscal year's three and nine months ended March 31, 2025.

REVENUE

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ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section provides management's view of the Company's financial condition and results of operations and should be read in conjunction with the audited consolidated financial statements, and related notes included elsewhere in this report. All dollar and share amounts, except per share amounts, are in thousands and discussions compare fiscal 2026 to fiscal 2025. Discussions of fiscal 2024 items and comparisons between fiscal 2024 and fiscal 2025 that are not included in this Form 10-K can be found in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025.

OVERVIEW

Jack Henry & Associates, Inc. is a well-rounded financial technology company headquartered in Monett, Missouri, that employs approximately 7,300 full-time and part-time associates nationwide, and is a leading provider of technology solutions and payment processing services primarily to community and regional banks and credit unions. Our solutions serve over 7,200 clients and consist of integrated data processing systems solutions to banks ranging from de novo to multi-billion-dollar institutions with up to $55 billion in assets, core data processing solutions for credit unions of all sizes, and core-agnostic products and services that enable banks and credit unions of every asset size and charter, and diverse corporate entities outside the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs. Our integrated solutions are available for on-premise installation and delivery in our private and public cloud.

Each of our solutions shares the fundamental commitment to provide high-quality business systems, service levels that consistently exceed client expectations, and integration of solutions and practical new technologies. The quality of our solutions, our high service standards, and the fundamental way we do business typically foster long-term client relationships, attract prospective clients, and have enabled us to capture substantial market share.

Through internal product development, disciplined acquisitions, and alliances with companies offering niche solutions that complement our proprietary solutions, we regularly introduce new products and services and generate new cross-sales opportunities. We provide compatible computer hardware for our on-premise installations and secure processing environments for our outsourced solutions in our private and public cloud. We perform data conversions, software implementations, initial and ongoing client training, and ongoing client support services.

We believe our primary competitive advantage is client service. Our support infrastructure and strict standards provide service levels that generate high levels of client satisfaction and retention. We consistently measure and monitor client satisfaction using a variety of surveys, such as an annual survey on the client's anniversary date and randomly-generated online surveys initiated each day by routine support requests to ensure feedback is received throughout the year. Dedicated surveys are also used to grade specific aspects of our client experience, including product implementation, education, and consulting services.

Our two primary revenue streams are "services and support" and "processing." Services and support includes: "private and public cloud" revenues that predominantly have contract terms of six years at inception; "product delivery and services" revenues, which include revenues from the sales of licenses, implementation services, deconversions, consulting, and hardware; and "on-premise support" revenues, composed of maintenance fees that primarily contain annual contract terms. Processing includes: "remittance" revenues from payment processing, remote capture, and ACH transactions; "faster payments" revenues from electronic payment services, "card" revenues, including card transaction processing and monthly fees; and "transaction and digital" revenues, which include transaction and mobile processing revenues. We continually seek opportunities to increase revenue while at the same time containing costs to expand margins.

We have four reportable segments: Core, Payments, Complementary, and Corporate Services (which prior to the third quarter of fiscal 2026 was referred to as Corporate and Other). The respective segments include all related revenues along with the related cost of revenue.

A detailed discussion of the major components of the results of operations follows.

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RESULTS OF OPERATIONS

FISCAL 2026 COMPARED TO FISCAL 2025

In fiscal 2026, total revenue increased 7.1% or $169,051, compared to fiscal 2025. Reducing total revenue for deconversion revenue of $42,830 in the current fiscal year and $33,905 in the prior fiscal year and for acquisition revenue of $5,193 in the current fiscal year and revenue related to a contract change of $15,874 in the prior fiscal year, results in a 7.3% increase, or $170,807. This increase was mainly driven by non-acquisition-related growth in data processing and hosting within cloud revenue as new clients were added and volumes expanded, card processing revenue primarily from monthly service and risk management fees, Jack Henry digital and transaction revenue as active monthly users and volumes increased, and faster payments and payment processing revenues from expanding volumes and new client revenue.

Operating expenses increased 5.7%, or $102,733, in fiscal 2026 compared to fiscal 2025. Reducing total operating expenses for deconversion costs of $12,878 in the current fiscal year and $6,242 in the prior fiscal year and for acquisition costs of $8,152 and a gain on assets of $6,829 in the current fiscal year and costs related to a contract change of $13,516 in the prior fiscal year, results in a 6.1% increase, or $108,291. This increase was primarily due to higher personnel costs including increases in compensation costs during the trailing twelve months, increased direct costs generally commensurate with growth in the related lines of revenue, and higher amortization of capitalized software.

As we move into fiscal 2027 we continue to be excited and confident about our future, and we remain well-positioned to deliver durable, consistent growth and attractive results for our shareholders. Technology spending by financial institutions remains strong, and there is clear demand for our differentiated and innovative technology solutions. We have a very healthy sales pipeline and a proven ability to attract and win deals, especially with larger financial institutions. We believe our unwavering focus on culture, service, innovation, strategy, and execution continues to set us apart in the market and will enable us to drive continued revenue growth with strong margin expansion, benefiting our associates, clients, and shareholders.

A detailed discussion of the major components of the results of operations for the fiscal year ended June 30, 2026 compared to the fiscal year ended June 30, 2025 follows.

REVENUE

Services and support includes: "private and public cloud" fees, which predominantly have contract terms of six years at inception; "product delivery and services" revenue, which includes revenue from the sales of licenses, implementation services, deconversion fees, consulting, and hardware; and "on-premise support" revenue, which is composed primarily of maintenance fees with annual contract terms.

In the fiscal year ended June 30, 2026, services and support revenue increased 6.3% compared to the prior fiscal year. Reducing total services and support revenue by deconversion revenue for each year, which totaled $42,830 in fiscal 2026 and $33,905 in fiscal 2025 and by revenue related to a contract change of $15,874, services and support revenue grew 7.1%. This increase was primarily driven by growth in data processing and hosting revenue within private and public cloud revenue, higher consulting, work orders and release fees revenue, a rise in implementation revenue, and increased license and hardware revenue partially offset by the decrease in software usage revenue.

Processing revenue includes: "remittance" revenue from payment processing, remote capture, and ACH transactions; "faster payments" revenues from electronic payment services, "card" fees, including card transaction processing and monthly fees; and "transaction and digital" revenue, which includes transaction and mobile processing fees.

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Processing revenue increased 8.2% for the fiscal year ended June 30, 2026, compared to the fiscal year ended June 30, 2025. This increase was mainly driven by growth in card revenue from monthly service and risk management fees, improvement in Jack Henry digital and transaction revenue from a higher number of active users on our digital platform, and a rise in faster payments revenue.

OPERATING EXPENSES

Cost of revenue for fiscal 2026 increased 5.4% compared to fiscal 2025. Reducing total cost of revenue for deconversion costs of $7,420 in the current fiscal year and $3,517 in the prior fiscal year and for acquisition costs in the current fiscal year of $6,225 and costs related to a contract change in the prior fiscal year of $13,516 results in a 5.7% increase. This increase was primarily due to higher personnel costs, including compensation and benefit costs, partially related to trailing twelve month headcount growth, higher direct costs generally consistent with increases in related lines of revenue, as well as higher amortization of capitalized software and increased internal licenses and fees. Cost of revenue decreased 1% as a percentage of total revenue for fiscal 2026 compared to fiscal 2025.

We devote significant effort and expense to develop new software and service products and continually upgrade and enhance our existing offerings. We believe our research and development efforts are highly efficient because of the extensive experience of our research and development staff and because our product development is highly client driven.

Research and development expenses for fiscal 2026 increased 8.4% compared to fiscal 2025. Reducing total research and development costs for acquisition costs in the current fiscal year of $1,803 results in a 7.3% increase. This increase was mainly due to higher personnel costs, including compensation and benefit costs, partially related to trailing twelve month headcount growth. The increase in this expense category for the current fiscal year reflects our continuing commitment to the development of strategic products. Research and development expense remained consistent as a percentage of total revenue for fiscal 2026 compared to fiscal 2025.

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